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The most reliable reversal pattern in technical analysis. Three peaks with the middle (head) highest, flanked by two lower peaks (shoulders), signaling trend exhaustion.
The Head and Shoulders is considered by many the most reliable reversal pattern in all of technical analysis. It consists of three peaks: a left shoulder, a higher head, and a right shoulder at approximately the same level as the left.
The pattern forms after an uptrend and signals that buying momentum is exhausting. It's confirmed when price breaks below the neckline - the support line connecting the troughs between the three peaks.
This pattern tells the story of gradual exhaustion. The left shoulder forms normally during a healthy uptrend - buyers push price higher, then take profits, creating a pullback to what becomes part of the neckline.
The head shows buyers can still push to new highs, but notice the reaction: sellers come in quicker, the pullback is sharper. The right shoulder is the critical tell - buyers can't even reach the prior high. The momentum has shifted.
When the neckline breaks, it's the final verdict: the uptrend is over. The pattern represents a transfer of control from buyers to sellers, unfolding over multiple swings so both parties have time to recognize the shift.
Aggressive: Short at the right shoulder with stop above head. Conservative: Short on neckline break with close below, or on retest of neckline as resistance.
Aggressive: Above the right shoulder. Conservative: Above the neckline (tighter) or above right shoulder (wider but safer).
Measured Move: Distance from head to neckline, projected downward from the breakdown point. Conservative T1: Recent support level or 50% of measured move.
Often 1:3 or better due to the large measured move potential. This pattern has one of the best R:R profiles.
The Head and Shoulders is reliable, but context still matters. The quality of the preceding trend and the confirmation of the breakdown significantly affect success rate.
The neckline break is the entry, not the right shoulder formation. Many head and shoulders patterns fail at the neckline.
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